Private investors sell out of UK equities to the tune of £9.1bn in a mere matter of months but who are these retail individuals anyway?

8th January 2015

Capita Asset Services has caused quite a furore this week calculating that the UK market saw some £9.1bn of retail money moving out of equities between September to November last year. But should you be worried about what this signals asks Mindful Money editor John Lappin…

Here are the Capita stats in summary.

£9.1bn equity sales reversed more than three years of investment, and is a record for a single quarter

All sectors saw private investors selling

Overall turnover of shares was the highest for three years

Private investor holdings fell £17.7bn between September and November to £224.2bn

Private investor share of UK Plc fells to 11.0%

Quite a list, but what could be the explanation? At Mindful Money, we think it is relatively easy to assess. First the UK market and particularly the FTSE 100 bears just about the least resemblance to the domestic economy it ostensibly represents, of just about any developed world index. The CAC is French, the Nikkei is Japanese, the S&P 500 and Dow Jones are US. Many firms listed here – take Glencore for example – are not really reliant on the UK domestic economy. So the UK is handy for giving you exposure to commodities, mining and oil, but it is a highly internationalised market. Revised figures for the UK economy may cause a few jitters, but not as many as a meltdown in the oil price or fears of a Grexit.

But another reason for the fall is that the domestic giants included in the index are also not having a great time. Tesco has suspended its final dividend and clearly has a huge turmoil to overcome, but actually supermarkets collectively face a systematic challenge from the discounters most of which are not listed and probably wouldn’t be listed here if they were. We may have passed peak supermarket.

Meanwhile UK banks struggle to achieve normality unless normality is a huge fine a week, while the EU appears incapable of devising a set of policies that will begin to drive recovery while the Greek voters are not doing anyone any favours (outside of Greece anyway).

So we had a big sell off at a time of huge global uncertainty. That should may be no surprise when the headline index is really is a global index.

One point though. Most retail investors are invested through funds and pensions. A ‘private investor sell off’, is not a good thing for them, but for the most part they may not be taking part in it.

Whether the pension, mutual, discretionary and investment trust managers they invest with, have sold out is another issue altogether, but it strikes us that rather than selling out, they are probably adjusting tactics and tactical asset allocation.

This isn’t really good news but it is old news and depending on your time horizon, it may not be something to really worry too much anyway.

However even those who tried to time the market may have been caught out.

Capita Asset Services chief executive Justin Cooper said: “Once bitten in that collapse, it seems they were twice shy at the rumour of another.

“They may well have panicked unnecessarily. Markets have recovered their poise somewhat and made up much of the lost ground, so those who sold out at the low point in mid-October may be regretting their decision.”

Meanwhile Hargreaves Lansdown, which professed itself cynical about the extent of the sell-off, given trading on its own platform, also put forward its ideas about why it might have happened.

But why might investors have sold out?

Profit-taking – stocks have had a pretty good run, with the FTSE 100 rising 20% between the beginning of January 2013 and the end of September 2014, so it is natural to see some investors taking profits.

Oil and supermarkets – these are popular sectors with private investors and both have hit the headlines for the wrong reasons. Supermarket stocks have been rocked by the price war with discounters, with Tesco’s woes compounded by an accounting scandal. Popular oil stocks like BP and Royal Dutch Shell have also clearly been badly hit by the slumping oil price.

Re-investing interval – investors who have sold out of stocks like Tesco and BP because of industry headwinds may still be mulling where to re-invest the proceeds. They may be taking time to research stocks, or simply waiting for the right opportunity to enter the market.

Laith Khalaf, senior analyst at the Hargreaves Lansdown said: “The market has suffered a number of trials and tribulations in the last few months, chief amongst them the oil price shock and the re-surfacing of Eurozone woes. Meanwhile the big four supermarket stocks, which are popular with private investors, have seen their turf invaded by the discounters, experiencing serious falls in their share price as a result.

“But all of this doesn’t add up to a hill of beans compared to the kind of financial stress witnessed during the financial crisis. Today’s investors will be steeled by the events of 2008, and will know that even extreme market turbulence eventually fades, and may actually provide a buying opportunity. Indeed our data suggests that many private investors viewed recent market falls in precisely this light.”

In addition ComPeer, the business benchmarking service, estimate net retail sales of £75m over this period, so while it was a very modest inflow into stocks, it was an inflow nonetheless.

2 thoughts on “Private investors sell out of UK equities to the tune of £9.1bn in a mere matter of months but who are these retail individuals anyway?”

and “First the UK market and particularly the FTSE 100 bears just about the
least resemblance to the domestic economy it ostensibly represents, of
just about any developed world index”.

This goes on to talk about Ftse 100 companies at length with no mention of the other 3000 or so listed companies. So what are we talking about here John – the Ftse 100 or the entire Ftse of approximately 3000 companies?